The following is a guest post by Adrián Cisneros Aguilar.*
Over the past decade, I have come to the reluctant conclusion that most Mexican companies are unwilling to spend the time or the money to get timely, experienced, and appropriate help when doing business with China. I cannot tell you how many times in just the last year a Mexican company has come to me for my “quick” advice on “a few key terms” of a deal they are just about to close without having ever conducted even the most basic legal due diligence. Is the Chinese side a real company? Are they dealing with an authorized representative? Is the deal legal under Chinese law? Will they have any recourse if something goes wrong?
Mexican companies doing business with China (and many of the business consultancy firms advising them) do not seem to care about these questions, and it stems from a false distinction between “business” and “legal” affairs. A company is both empowered and constrained by business norms, but those norms have no meaning without a legal framework. It’s not one or the other – it’s both. And comprehending the importance of both business and legal affairs is all the more important in countries like China where the law is often interpreted with an eye to both politics and the economy. But few Mexican entrepreneurs see law that way – they only care about the deal, and they tend to think of the law as an obstacle.
Many Mexico experts boldly claim that Mexico can rely on its treaty network to expand its imports and exports, but this is a triumph of theory over practice. Few Mexican companies truly understand how to conduct business internationally, as witnessed by the underutilization of the free trade agreement network already available to them. According to a report by the Congressional Research Service, approximately 80% of Mexican exports go to the United States (don’t get me started on the amount of FDI we get from America), but most Mexican companies are not familiar with the applicable terms of NAFTA. This lack of sophistication leads to bad business decisions. I regularly receive emails from Mexican companies that have fallen for the Chinese bank switch scam and hope that I can help get their money back.
Having worked with many Mexican companies in improving how they do business in China and with China, I worry that too many Mexican companies continue to ignore the law (largely because they don’t care about it) and never truly become “international.” Plenty of Mexican companies buy low cost off-the-shelf Chinese products to import into Mexico and there are also a number of Mexican companies that intermittently supply products to China with little or no added value. But how many Mexican companies have strong investments in China or regularly sell large amounts of product there? Not many.
To put it bluntly, if our government and our companies do not start spending more money for high-level assistance to get more sophisticated about China, our government’s current international diversification strategy will fail, at least for China. Before we spend more money encouraging Mexican companies to go abroad (or at least to somewhere other than to the United States), or promoting Mexico as a target for foreign investment, we need to spend more money educating Mexican companies on how to conduct business internationally. We need to get them to think more about the importance of the relationship between China law and business.
Otherwise, we’re just going to be spinning our wheels.
For more on business between Mexico and China, check out the following:
- China and Mexico: The Two Amigos? Part I
- China and Mexico: The Two Amigos? Part II
- China and Mexico: The Two Amigos? Part III
- China and Mexico: The Two Amigos? Part IV
- Is Mexico Really Better Without China?
- Is Mexico Really Better Without China? Part Two
*Adrián Cisneros Aguilar is the founder/CEO of Chevaya (驰亚), an Asia-Pacific internationalization services company. Adrián has a Doctor of Laws from Shanghai Jiao Tong University and an LL.M. in International and Chinese Law from Wuhan University.This article was written by China Law Blog and published on China Law Blog. Original Post: https://www.chinalawblog.com/2018/04/improving-mexico-and-china-business-relations-make-it-the-law.html